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Climate Change: Developing countries and the elusive funds

Posted on Thursday, 11 December 2014 17:26

This week, as negotiators continued working on the various issues that still need to be hammered out, ministers presented their expectations and suggestions for resolution on issues of climate finance and the new global agreement at the UN climate conference.

onerous requirements may limit the ability of developing countries to access the funds

Wednesday’s dialogue, chaired by Peru’s Minister Manuel Pulgar-Vidal, focused on the new agreement that is intended to be finalised in Paris in 2015. The statements presented were a reflection of the rigid state of key issues in the negotiations, leading Colombia’s representative to say: “We don’t want to leave here without a Lima draft”.

Despite calls for a concrete decision on Intended Nationally Determined Contributions (INDC) to allow for preparations ahead of Paris, there is still a clear division between countries: Those who want the INDC to be focused on mitigation only on the one hand, and those who want it to include adaptation, technology transfer and capacity building on the other.

Although Japan acknowledged the importance of adaptation in the agreement, it insisted that mitigation should be “at the centre of the INDC” while the UK called for adaptation, finance and mitigation to have different “vehicles” rather than all being included in the INDC.

China made a strong case for the principle of Common But Differentiated Responsibility and Respective Capabilities to become a core principle of the 2015 agreement, and for the INDC to include all elements. As for the EU, a decision on differentiation, with principals to be “dynamically applied to mirror evolving situations”, is needed.

The EU was backed by Switzerland who said that “a mandate should be given to negotiators to work out what is fair and what will be fair in 10 or 15 years when the agreement is functional”.

Private finance

Earlier within the week, China had called for developed countries to fulfill their finance commitments under the convention to provide developing countries with sufficient and predictable finance, warning that this obligation cannot be transferred as private finance.

According to Saint Lucia, the costs of climate disasters have already exceeded domestic resources, forcing some to resort to debt financing in order to cope with the increased frequency of extreme weather events. Climate finance funds, Saint Lucia’s representative said, should be separated from Official Development Assistance and rather committed to addressing climate change only.

With Germany pledging a financing of the Adaptation Fund, new commitments for the Green Climate Fund (GCF) from Australia, Mexico, Belgium and Peru mean that pledges now total just over $10 billion, an amount Grenada argues is significantly less than should have been already available.

As various countries called for a strong upscaling of GCF commitments to reach $100 billion per year by 2020, Egypt argued that that amount should be considered a “floor”. But while there is great celebration of the pledges, they do not translate as actual money in the bank.

And despite a warning from Grenada against “onerous requirements” that would limit the ability of developing countries to access the funds, contribution agreements are yet to be signed. It is also not yet certain what conditions will be attached to the funds, especially as there is no guarantee that these funds will not be allocated mainly to the private sector.

The GCF, and general discussions on finance, place heavy emphasis on the need to leverage private finance, using public funds. In terms of the level of transformation that is needed to be able to reach a zero carbon state in less than 40 years, changes in investment patterns are required now.

Not a subsidy scheme

Speaking at a side event at the negotiations, GCF board member Tosi Mpanu Mpanu said that the private sector facility is not meant to be a subsidy scheme, but rather about empowering the private sector to participate. GCF is intended to fund mechanisms that can improve the conditions for private investors to take risks and ultimately change patterns of investment to sustainable options.

The simplified ideal is to support developing countries to leapfrog dirty, carbon-intensive energy options and rather invest in renewable energy and energy efficiency at the outset of their new development investments. The goal is to create entirely new patterns of production and consumption that support the zero carbon vision.

The Fund is also meant to support projects that are in keeping with national development plans.

But the relative idealism and inclusivity that the GCF is supposedly infused with may not be realised in practice. Even leaving aside the poor track records of other climate funds in securing their pledges or investing in genuinely climate friendly technologies, it is not likely that the funds will be easily accessible for local scale projects.

The fund commits to allocate 50 per cent of its funds to adaptation “over time”, with 50 per cent of that committed to least developed countries, small island developing countries and Africa. But with the focus on the private sector, it’s not easy to see how adaptation will be supported.

In developing countries, businesses that would be able to invest in adaptation are likely to be Small, Medium and Micro-sized Enterprises (SMMEs), which means that there are likely to be capacity limitations for accessing the funds. It may be possible for a country to set up a facility to disburse funds to smaller groups, as South Africa did for its Adaptation Fund.

Tedious processes

While GCF also allows for a fast track process for accreditation for bodies that already have accreditation for climate funds under the Global Environment Facility (GEF), these processes are notoriously tedious.

And with a high level of capacity is needed to meet their various funding requirements, the fast tracking of accreditation means is that large institutions and banks who are already accessing climate funds will be first in line to receive funds from the GCF. Thus limiting the ability of developing country institutions or local governments to access these funds.

Another uncertainty that relates to the commitment to adaptation is that GCF commits to allocating its funds equally to adaptation and mitigation, but “over time”. This makes room for delays in matching adaptation funding to mitigation funding. As it stands, only 11 to 24 per cent of climate funds are used for adaptation.

Adaptation is the critical need for many developing countries and especially so for many parts of Africa.

The definition of climate funds across institutions also needs more clarity. Some have been funding fossil fuel projects under the guise of climate friendly technologies on the basis that their current emissions are more responsible than business as usual.

At the end of the day, upscaled pledges would address only a small part of the gap in climate financing.

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